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The telephone doctor: What kind of cell phone user are you?

Jan 30, 2006

Think outside the box: Originating non-mortgage business loans Mitchell Chapmannon-typical mortgage loan products During the past several years, mortgage brokers have enjoyed tremendous personal, financial and professional success as interest rates continued their steady decline. Riding the avalanche of the residential refinancing frenzy, scores of newcomers entered the mortgage profession seeking to capitalize on this no-brainer market. During the fourth quarter of 2003, originations dropped 48 percent, leaving the market over-saturated with brokers competing for fewer transactions. In response to a stronger and growing economy, the Federal Reserve continues to raise short-term interest rates. The 2005 Mortgage Bankers Association projections indicate a 22 percent decrease in overall originations and a 35 percent decrease in refinancing activity compared to 2004. As origination and refinancing activity continue their downward trend from the historical high of third-quarter 2003, forward-thinking mortgage brokers continue to seek other streams of income that will be financially rewarding and helpful in serving their clients. Creative residential brokers have increased and expanded their programs to include sub-prime, jumbos, stand-alone second mortgages and combos. They have even taken the leap into the forbidden zone of small-balance commercial mortgages. However (and I'm sad to say it), the majority of commercial brokers have sat still and allowed their residential counterparts to gain market territory, leading to increased competition. There is an enormous and widely untapped opportunity that exists for both residential and commercial mortgage brokers. However, both must be willing to become teachable, flexible and progressive in their thinking before they can gain a competitive edge by working outside the box. This virtually untapped opportunity exists in originating non-mortgage business loans. Many brokers from both sides of the aisle are finding this to be an extremely lucrative opportunity with numerous financial, professional and personal advantages. There are several reasons why residential and commercial mortgage brokers should venture into the wonderful world of non-mortgage business loans. Here are just a few of the advantages: - You already have an existing database of clients to offer these services. - Statistics indicate that business owners account for approximately 25 percent of a residential broker's database and almost 100 percent of a commercial broker's database. - There are no RESPA or licensing requirements for originating non-mortgage business loans. - There is very little competition and the market is wide open. - Banks are continuing to tighten their submission and approval standards. As a result, banks are turning away their existing clients and turning them towards non-mortgage commercial loan brokers. - Savvy business owners are always looking for alternative financial solutions that can provide additional working capital or expand their businesses. Some of the various vehicles employed to originate non-mortgage business loans include unsecured working capital through lines of credit and/or term loans (at bank rates and terms); accounts receivable financing (not factoring); inventory and customer purchase order financing; equipment leasing; and special programs for medical practices, doctors and other professionals. Among all of the non-mortgage business loan programs, my personal favorite is the unsecured working capital program, which provides either a line of credit and/or term loan to the business. Over the years, we have successfully used this program to assist, enhance and close numerous residential and commercial real estate acquisitions and refinances. At this point, you may very well be thinking to yourself, "How is this possible? Can you give me an example of how this might assist my business clients?" Thank you for asking! First and foremost, using unsecured working capital - either in the form of a line of credit or a term loan - is possible, ethical and most importantly, lawful. Lets say you have a business client who has a two-year-old business, with a personal credit score of 660 or higher. Your client can even go full-doc and is aggressively seeking to purchase another property, or refinance their current property. You go through the obligatory steps of pulling credit and completing the 1003. Everything looks great, but you realize after numerous conversations they will never be able to close, even on a refinance, because they are short of cash. Now what are you going to do? If you are not originating non-mortgage business loans, your deal is dead! However, if you are a forward-thinking mortgage broker, you can now close this deal because you have access to an unsecured working capital program. In closing, let me ask this question: How many deals have you lost in the past because your business client was short of cash? Now, how many of these very same deals would you be able to close if you could help these very same business clients obtain unsecured working capital? Now is the time to think outside the box! Mitchell Chapman is managing director of Business Finance USA, a business consulting firm that provides alternative financial solutions for small businesses. He may be reached at (954) 548-1455 or e-mail at [email protected].
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